One of the questions I am asked most frequently is “how can a Medicare Advantage plan have No Premium” This is a very valid question and I am writing today to try to shed some light on this question.
The simple answer is Government subsidies. When you sign up for a Medicare Advantage plan the Federal Government pays the Insurance company a certain amount or “Premium” each month to handle all of your medical claims. The amount of money is determined by many factors such as the cost of Medical care in your County and other factors.
As you know the government takes money from your Social Security check each month for your Medicare Part B premium. If you were to decide to stick with Original Medicare ONLY the government would pay a portion of your bills and you would be responsible to pay the rest.
The problem with Medicare has always been the “GAPS” in coverage and the co-insurance. Without going into too much detail here’s some of the expeses you will encounter with Original Medicare ONLY:
- $1100 Deductible for inpatient hospital stays
- $155 yearly deductible for outpatient services (doctors, lab tests, etc….)
- 20% of all outpatient services (after the $155 deductible is met)
With the Medicare Modernization Act of 2006 came Medicare Advantage (formerly Medicare+choice) and Medicare Part D to help Seniors with prescription drug costs (prior to this there was no Medicare drug coverage).
The Federal Government had a team of experts find and determine how much was being paid in claims each month per each Medicare beneficiary. Once this number was established they decided that private insurers may be able to deliver more efficient results with the same or less per month. A number was agreed upon with a yearly inflation increase and thus the beginning of Medicare Advantage.
This program was enacted with the intention of providing affordable and predictable healthcare costs which it has done. It was also designed to create predictable healthcare costs for the United States Government which it has also done.
Many Medicare Advantage plans offer additional benefits not offered by Original Medicare such as Dental, Vision, Hearing and even Health Club memberships or fitness classes in some cases. Since Insurance companies receive additional subsidies, in many cases they will include Part D coverage with no additional premium.
If you shop around you can find some great deals on Medicare plans. Due to our free enterprise system when companies compete for our business it brings costs down and benefits up.